Hansen, Peter Reinhard: Structural Breaks in the Cointegrated Vector Autoregressive Model
World Conference Econometric Society, 2000, Seattle

Peter Reinhard Hansen, Brown University
Structural Breaks in the Cointegrated Vector Autoregressive Model
Session: C-1-17  Friday 11 August 2000  by Hansen, Peter Reinhard
We generalize the cointegrated vector autoregressive model of Johansen (1988, 1991) to allow for structural breaks. We derive the likelihood ratio test for structural breaks occurring at fixed points in time, and show that it is asymptotically chi-squared. Moreover, we show how inference can be made when the null hypothesis is presence of structural breaks.
The estimation technique derived for this purpose can be applied to several other generalizations of the standard model, beyond the structural breaks treated here. For example, the new technique can be applied to estimate models with heteroskedasticity.
We apply our generalized model to US term structure data, accounting for structural breaks that coincide with the changes in the Fed's policy in September 1979 and October 1982. Contrary to previous findings we cannot reject the long-run implications of the expectations hypothesis.
Submitted paper full-text in .pdf

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